Requiring a change in plan investments.

[Guest mwest]

Scenario:

The Plan Trustee is planning a change in plan investments. The plan currently offers both fixed and variable annuities w/ A insurance company). The Trustee is planning to move all funds from A to B (mutual fund company), which of course does not offer a fixed annuity product. The "market value adjustment" to liquidate the fixed annuity product will result in a substantial penalty to participants at this time. The fixed contract allows an employee to move 20% of their fixed account each year without incurring the market value adjustment.

Question:

Can the trustee require each employee to liquidate 20% of their fixed account each year to help move toward the day when all funds will be with B, while attempting to minimize the market value adjustment? Will this require a plan amendment or is the trustee's decision, together w/ appropriate employee notice to those affected employees sufficient?

[Guest consultant]

If the trustee requires a participant to do this, he is showing discretion over the plan assets and could incur personal liability for such action. The trustee cannot override the written election by a participant unless he feels it is in the best interest of the participant and should be able to demonstrate why. Careful documentation should be kept outlining the changes with regard to proof of interest and reason for changing. The trustee's duty is to protect the best interest of the participants and beneficiaries and should also determine the cost of such changes to the participant accounts. If the plan is really 404© compliant, this action could jeopardize that status. Why is the trustee making this change? Is it a cost issue? If so, who will see the savings, the company and/or the participants? Better investments options etc.

It probably would not require an amendment, maybe a notice to employee's suspending or revoking participant direction. See if the plan document even mentions participant direction. Is the GIC you are refering issued by Nationwide Life by any chance?